Report on the 31 March 2019 Actuarial Valuation
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Report on the 31 March 2019 actuarial valuation Local Government Pension Scheme (Northern Ireland) Prepared for Northern Ireland Local Government Officers' Superannuation Committee as Scheme Manager of LGPS (NI) Prepared by Aon 2019 30 March 2020 At a glance Past Service Position Shorthand There was a surplus of £836.9M relative to the liabilities. The funding level was 112%. Funding level: the value of assets held by the Fund divided by the liabilities. Funding target (liabilities): the level of assets determined by the Committee as being appropriate to meet member benefits, assuming the Fund continues indefinitely. Future service rate: the employer share of the cost of benefits being earned in future, expressed as a percentage of pensionable pay. The figure quoted is a weighted average of all employers' future service rates. Pensionable Pay: as defined in the Regulations in Employer Contributions relation to post-2015 membership. % of 2019 valuation 2016 valuation Recovery period: the period over which any surplus or Pensionable Pay shortfall is eliminated. Future service rate 20.7% 19.3% Past service rate: the adjustment to the future service Past service rate (4.3)% 1.7% rate, expressed as a % of pensionable pay, needed to Allowance for possible cost 3.2%* n/a restore the funding level of the Fund as a whole to 100% over the recovery period, if the membership is broadly of McCloud / Cost Cap stable and pay increases and other assumptions are as Total rate 19.6% 21.0% assumed. This adjustment is negative when the Fund is in Recovery period 20 years from 1 April 2020 20 years from 1 April 2017 surplus. *2.8% Future service, 0.4% past service. Shortfall (deficit) / Surplus: the difference between the value of assets and the aggregate funding target (value of The aggregate Employer future service contribution rate (the "common rate of employers' the liabilities) for the Fund as a whole, where the value of contribution") is 20.7% of Pensionable Pay. assets is less/higher than the funding target. Individual The contributions payable by each employer or group of employers may differ because they employers may have a surplus or shortfall, and the total of allow for each employer's or group's membership profile, funding target and funding level, these will be equal to the shortfall or surplus for the Fund recovery period and other parameters appropriate to their circumstances. as a whole. 2 Contents At a glance ............................................. 2 Introduction Introduction ............................................ 3 This actuarial valuation report is required by Regulation 68 of the Regulations. It summarises the results of the funding Update since the previous valuation ...... 5 valuation of the Fund at as 31 March 2019, including the Rates and Adjustments Certificate which sets out the contributions Notable changes since the previous valuation ................................................. 6 payable by employers from 1 April 2020 to 31 March 2023. Membership data and benefits valued ... 7 Next steps Funding objectives ................................. 8 This report concludes the formal valuation process and draws together other pieces of work and advice. As required by Summary of assumptions ..................... 10 Regulation 72 this report must be published and made available to the Department for Communities (Northern Ireland), Past service results .............................. 13 current and prospective employers who contribute, or may become liable to make payments to the Fund. Addressing the shortfall / allowing for the surplus .................................................. 14 Future service results ........................... 15 Risks and uncertainties ........................ 16 Individual employer contribution rates . 17 Final comments .................................... 19 Further Information ............................... 21 a. Legal framework 22 b. Membership data 24 Alison Murray FFA Scott Campbell FIA c. Uncertainties 43 d. Assets 48 [email protected] [email protected] e. Assumptions used to value the liabilities and assess contribution rates 49 f. Membership experience 54 g. Dashboard 55 h. Rates and Adjustments Certificate 57 i. Glossary 73 Contact us ............................................ 82 The report concentrates on the Fund's financial position at the valuation date. As time moves on, the Fund's finances will fluctuate. If you are reading this report sometime after the valuation date, the Fund's financial position could have changed significantly. 3 Shorthand Fund: Northern Ireland Local Government Officers' Pension Fund (or L.G.P.S (NI)) Committee: Northern Ireland Local Government Officers' Superannuation Committee (NILGOSC), in its role as the Scheme Manager of the Fund Employers: NILGOSC, and other employers with employees participating in the Fund Regulations: The Local Government Pension Scheme Regulations (Northern Ireland) 2014 (as amended) (and other Regulations as referenced in the Glossary) Additional information Section a in the Further Information section appended to this report sets out the legal framework within which the valuation has been completed. The benefits valued are set out in the Regulations. Throughout this report, assets and liabilities in respect of defined contribution additional voluntary contributions (or AVCs) have been excluded. The funding targets, recovery periods and other parameters which apply to individual employers or groups of employers are set out in other advice papers. 4 Update since the previous valuation Financial development Key results from the previous valuation as at 31 March 2016: The table below compares the key financial The Fund's assets were £5,820.1M and the past service liabilities were £6,082.7M, assumptions made at the previous valuation with what corresponding to a shortfall of £262.6M and a funding level of 96%. actually happened and the corresponding assumptions The aggregate employer future service contribution rate was 19.3% of Pensionable Pay. for the 2019 valuation. Employer contributions from 1 April 2017 were agreed to broadly restore the funding level to 2016 2016-2019 2019 assumption experience assumption 100% over a period of up to 20 years as follows: . An average employer contribution rate of 19.3% of Pensionable Pay; and Investment 4.5% pa 11.0% pa(1) 4.1% pa . Additional monetary amounts giving total contributions as follows: returns Year from 1 April % of Pensionable Pay Plus aggregate contribution CPI 2.0% pa 2.1% pa(2) 2.1% pa amounts (£M) increases 2017 18.3 18.5 Pay 3.5% pa(3) 3.4% pa* 3.6% pa(3) 2018 19.2 18.7 growth 2019 20.2 18.8 (1) average figure, actual increases were: 21.6%, 6.2%, 5.9% For employers in surplus or where contributions were being stepped up (or down) the % of Pay (2) average figure, actual increases were 1.0%, 3.0% and 2.4% rate may have been lower (higher) than the future service contribution rate. Similarly, the (3) plus a promotional pay scale aggregate contributions may have been higher or lower than the sum of theoretical employer past service contributions where contribution changes were being stepped or otherwise *Actual pay increase experience (estimated from the data) is shown over the period smoothed in line with the Funding Strategy Statement (FSS). The recovery period shown is the from 2016 to 2019. This is total pay experience. Stripping out an approximate maximum permitted. Individual employers may have a period less than this in line with the FSS. allowance for promotional increases based on the valuation assumptions gives c3% In addition, employers pay contributions to meet additional strains arising on early retirement or of pay compared to the inflationary pay increase assumption of 3.5% in 2016 due to increases in benefits. Members also paid contributions as required by the Regulations. 5 Notable changes since the previous valuation Shorthand Changes affecting funding are briefly described below: GMP: Guaranteed Minimum Pensions. These accrued to members between 1978 and 1997 due to the LGPS (NI) being contracted-out of the State Earnings Related . Benefits / membership Pension Scheme Responsibility for paying full CPI pension increases on GMPs passing to the Fund for McCloud/Sargeant: Court cases involving the Judges' members reaching State Pension Age (SPA) between 1 April 2016 and 5 April 2021. and Firefighters' Pension Schemes respectively which The Government being denied leave to appeal the McCloud/Sargeant judgement followed found that transitional protections granted to members by the Ministerial Statement on 15 July 2019, which is expected to lead to an extension of within 10 years of pension age as part of the reforms to the final salary underpin in the LGPS (NI) or establishment of a new underpin. those schemes in 2015 constituted illegal age Potential changes in benefits as a result of the cost management process to assess the cost discrimination of public sector schemes against a base cost, although these changes are currently paused Cost management: The process of checking the cost following the McCloud/Sargeant judgement. of public sector schemes against a base cost, and Changes in the discount rate and longevity assumptions on which many of the Scheme-wide making changes if the current assessed cost of the actuarial factors, including early and late retirement factors, are based. scheme is higher or lower than this base cost. Uncertainties over GMPs and benefit improvements CPI: Consumer Price Index (CPI) is the price inflation